Evans v Hi-Fert Pty LTD
[2003] FMCA 279
•17 June 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| EVANS v HI-FERT PTY LTD | [2003] FMCA 279 |
| BANKRUPTCY – Annulment application – whether the sequestration order should have been made – whether the bankrupt is indebted to the petitioning creditor – exercise of discretion – whether the bankrupt is insolvent – whether the bankrupt uncooperative with the trustee – whether any proposal made for payment of the trustee’s fees. |
Bankruptcy Act 1966 (Cth), s.153B
Federal Court Rules
Federal Magistrates Court Rules 2001 (Cth)
Stankiewicz v Plata [2000] FCA 1185
| Applicant: | MARK CHARLTON EVANS |
| Respondent: | HI-FERT PTY LTD |
| File No: | AZ210 of 2002 |
| Delivered on: | 17 June 2003 |
| Delivered at: | Sydney, via videolink to Adelaide |
| Hearing date: | 17 June 2003 |
| Judgment of: | Driver FM |
REPRESENTATION
| Counsel for the Applicant: | Mr J Hart |
| Counsel for the Respondent: | Mr Slattery |
| Solicitors for the Respondent: Representative for the trustee: | Kelly & Co Mr Neate |
ORDERS
The application for review is dismissed.
The application for annulment is dismissed.
The applicant is to pay the respondent (petitioning creditor’s) costs of and incidental to the annulment application, to be assessed in accordance with the Federal Court Rules and paid in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT DECLARES THAT:
The costs of the trustee in dealing with the annulment application are to be treated as costs in the administration of the estate.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
AZ210 of 2002
| MARK CHARLTON EVANS |
Applicant
And
| HI-FERT PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This ex tempore judgment relates to two applications by Mark Charlton Evans filed in this Court in Adelaide on 2 June 2003 and 6 June 2003. In the first application, Mr Evans sought review of a sequestration order made by Registrar Christie of this Court on 5 December 2002. In the second application, filed on 6 June 2003, Mr Evans sought annulment of his bankruptcy and also sought interlocutory relief in the nature of a stay.
I have already ruled that I would dismiss the review application because it was filed significantly out of time having regard to rule 20.01(1)(a) of the Federal Magistrates Court Rules 2001 (Cth) (“the Federal Magistrates Court Rules”) and I was not persuaded that I should extend time for the filing of that application.
I ruled that I could deal with all of the issues raised by Mr Evans pursuant to his annulment application. That application was the one which was then heard before me. In relation to the application for interim relief in the form of a stay, I have not decided whether the relief sought could be granted. However, as will become apparent, it is not necessary to consider that issue.
The crux of Mr Evans' application for an annulment is that I should find that the sequestration order made by Registrar Christie should not have been made because Mr Evans asserts that he is not indebted to the petitioning creditor, at least in relation to the amount due pursuant to a judgment debt obtained by default in the South Australian Magistrates Court.
The relevant factual background is somewhat complex but it is necessary to go through it in order to understand that background. Mr Evans entered into a trading account with Hi-Fert Pty Limited, the petitioning creditor, on 9 May 1999. Subsequently, fertiliser was supplied to him for the purposes of his farming operations near Temora in New South Wales during 1999. Mr Evans dealt with Hi-Fert's local agent at Temora, Summer Hill Grains. The bankruptcy proceedings arose out of an asserted supply of 36 tonnes of fertiliser, in particular, urea, to the value of $12,060 through Summer Hill Grains on 29 June 2000.
The petitioning creditor asserts that Mr Evans was required to pay $12,060 by invoice dated 5 August 2000. Later, on 23 January 2001, the solicitors for the petitioning creditor sent a letter of demand which was unsatisfied. An amount of $10,391.60 was paid by Mr Evans to Summer Hill Grains some time between 14 August 2000 and 15 February 2001, but the petitioning creditor asserts that that related to an earlier supply of fertiliser on 26 June 2000. Some time after 15 February 2001, Hi-Fert elected to no longer use Summer Hill Grains as its agent.
Subsequently, there were legal proceedings between Hi-Fert and Summer Hill Grains in the New South Wales District Court which Mr Evans asserts is significant. On 9 May 2001, Hi-Fert filed a claim against Mr Evans for $24,632.88 in the South Australian Magistrates Court, which comprised the two amounts, which at the time, Hi-Fert asserted it was owed by Mr Evans, those being the amounts of $12,060 and $10,391.60. On 25 July 2001 Hi-Fert entered judgment against Mr Evans by default for $13,901.93. This was after allowing a credit for the sum of $10,391.60 paid by Mr Evans to Summer Hill Grains. The judgment debt obtained was not paid and on 6 September 2001 Hi-Fert issued a bankruptcy notice. This was served on 6 February 2002.
On 24 February 2002 Mr Evans sent a fax to the solicitors for the petitioning creditors stating that he did not purchase fertiliser after an initial purchase to the value of $8,953.20. He did not pay the amount claimed under the bankruptcy notice and a creditor’s petition was filed on 14 August 2002. The petition was served on 2 September 2002.
The petition was initially heard on 23 September 2002. Mr Evans attended and the hearing was adjourned to 14 October 2002, noting that Mr Evans disputed the debt. Mr Evans filed an appearance and notice of intention to oppose the petition on 11 October 2002. There was a further hearing of the petition on 14 October 2002 when Mr Evans once again attended by telephone. At that time I am told that Mr Evans admitted he had a debt to Hi-Fert in the sum of $8,953.20 but he disputed the amount due under the judgment debt.
The creditor’s petition was again adjourned to 28 October 2002 to allow further evidence to be provided by Hi-Fert. The solicitors for the petitioning creditor sent a number of documents to Mr Evans by fax on 15 October 2002.
On 23 October 2002 Mr Evans applied in the South Australian Magistrates Court to set aside the judgment supporting the bankruptcy notice and the creditor’s petition. In that application Mr Evans disputed that he purchased the products from Hi-Fert that he was allegedly indebted to Hi-Fert in relation to. On 28 October 2002, in the light of that application to set aside the judgment supporting the bankruptcy notice and creditors petition, Registrar Christie again adjourned the creditor’s petition until 11 November 2002.
On 6 November 2002 a Magistrate in the South Australian Magistrates Court rejected the application to set aside the judgment, apparently on the basis that Mr Evans failed to disclose a reasonable defence on the merits, and apparently also noting that Mr Evans admitted to being indebted to Hi-Fert for $8,953.20. On 11 November 2002 Registrar Christie again adjourned the creditor’s petition until 25 November 2002, noting that the Magistrate had permitted Mr Evans more time to file further affidavit material.
On 20 November 2002, notwithstanding the further material filed by Mr Evans, the South Australian Magistrate finally dismissed the application to set aside the judgment. On 25 November 2002, when the creditor’s petition was again heard, Mr Evans advised Registrar Christie that he intended to appeal against the dismissal of his application to set aside that judgment. Registrar Christie adjourned the creditor's petition again until 5 December 2002.
It appears that Mr Evans then made enquiries about fee waiver for an appeal but no appeal was lodged prior to 5 December 2002. On that date, the creditor's petition was dealt with by Registrar Christie and a sequestration order was made. Mr Evans did file an appeal against the South Australian Magistrate's decision on 9 May 2002. That appeal has not yet been determined, although I am told that his Honour Duggan J of the South Australian Supreme Court has heard the appeal and that the decision is reserved. It is likely that an issue of significance in that decision will be the standing of Mr Evans to prosecute the appeal after he became bankrupt.
The essence of the application before me is that Mr Evans claims that he did not purchase the product from Hi-Fert leading to the bill addressed to him and the proceedings in the South Australian Magistrates Court which produced the default judgment. Mr Evans has filed several affidavits in this Court on which he relies, in particular an affidavit with voluminous annexures filed on 6 June 2003 and a further affidavit filed today. Although the amount of material is voluminous, the proposition made by Mr Evans is relatively simple.
Mr Evans asserts that Hi-Fert was mistaken in pursuing him for the amount claimed in the South Australian Magistrates Court and that that amount was already dealt with in proceedings between Hi-Fert and Summer Hill Grains which were settled in the New South Wales District Court. In essence, Mr Evans says that he is not, and never has been, indebted to Hi-Fert in relation to the amount due under the judgment debt and that that amount has already been received by Hi-Fert from the settlement of its proceedings against Summer Hill Grains.
For its part, Hi-Fert asserts that there has been no duplication of claims and that Mr Evans was properly billed for fertiliser purchased by him from Hi-Fert. Hi-Fert relies in particular on the affidavit of Mark Graydon Egarr, which was also filed today, which disputes the factual allegations made by Mr Evans Hi-Fert also relies upon the affidavit of Amy Bronwyn Nolan, filed today.
Section 153B of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) provides that if a court is satisfied that a sequestration order ought not to have been made the court may make an order annulling the bankruptcy. The decision whether or not to make an order annulling a bankruptcy is a matter within the court's discretion. A person who seeks an annulment of bankruptcy carries a heavy burden and must make full and true disclosure to the court. What the court has to consider is first, should the sequestration order have been made and, secondly, should the court in its discretion annul the bankruptcy
In this matter, before I could reach a conclusion that the sequestration order should not have been made, it would be necessary for me to go behind the default judgment obtained in the South Australian Magistrates Court. It is possible for the bankruptcy court to go behind a judgment supporting a bankruptcy notice and creditors petition but that should not be lightly done.
Mr Slattery, for the petitioning creditor, took me to the decision of the Federal Court in Stankiewicz v Plata [2000] FCA 1185 which is authority for the proposition that in considering whether a sequestration order should have been made it is appropriate for the Court to deal with all of the issues as they are known now rather than what may have been a limited state of knowledge at the time the sequestration order was made.
That is relevant because it now appears that the admission by Mr Evans that he was indebted to Hi-Fert in the sum of $8,953 is itself an error.
I was told today that that amount has previously been paid by Mr Evans and so that issue should be treated as a red herring. It appears that that purported admission by Mr Evans was a factor in leading the South Australian Magistrate to dismiss the application by Mr Evans to set aside the default judgment.However, the South Australian Magistrates Court reached no conclusion on whether, apart from that admission, Mr Evans was indebted to Hi-Fert for the amount claimed leading to that default judgment. Mr Evans has the onus of proof in order to persuade me that facts or circumstances exist that should cause me to go behind the default judgment of the South Australian Magistrates Court.
It is apparent from the chronology of events that I have dealt with that Registrar Christie went to considerable lengths in order to give Mr Evans time to contest that default judgment. Eventually, on 5 December 2002 the Registrar decided that further delay was unwarranted. Mr Hart, who appeared today for Mr Evans, sought valiantly on behalf of his client to persuade me that the default judgment obtained in the South Australian Magistrates Court is unsafe and that I should go behind it and find that Hi-Fert has already received from Summer Hill Grains the amount alleged to be due from Mr Evans.
However, Mr Slattery, who took me through the relevant financial records by reference in part to the affidavit of Mr Egarr and in part to the documents annexed to Mr Evans own affidavit of 6 June 2003 was able to persuade me that there is merely a mathematical similarity between the settlement of proceedings against Summer Hill Grains and the amount due from Mr Evans. There is documentary evidence before me of the relevant purchase by Mr Evans. I find that on the balance of probabilities Mr Evans did obtain fertiliser from Hi-Fert through its agent, Summer Hill Grains, on 9 June 2000 and that he was properly invoiced for the amount of $12,060 in consequence of that purchase.
It is not beyond the bounds of possibility that Mr Evans did not use that fertiliser and that he returned it to Summer Hill Grains at some later date and that that fertiliser subsequently formed part of the stock on hand at the time of the termination of the agency agreement between Summer Hill Grains and Hi-Fert, which was the subject of the proceedings between Summer Hill Grains and Hi-Fert. However, that is merely a possibility and on the state of the evidence before me I am not persuaded that such a sequence of events occurred.
It follows that I am not persuaded that the default judgment obtained in the South Australian Magistrates Court is unsafe or that I should interfere with the sequestration order made by Registrar Christie. The annulment application therefore falls at the first hurdle in that I am not persuaded that the sequestration order made on 5 December 2002 should not have been made.
Even if I had been persuaded that that sequestration order should not have been made, I would not have been minded to exercise my discretion in order to annul the bankruptcy pursuant to section 153B of the Bankruptcy Act.
There are several reasons why I would not be minded to exercise that discretion in Mr Evans’ favour. The first is that I have evidence that Mr Evans is insolvent. He is a farmer and his bank has taken possession of his farm pursuant to its security over the farm in the form of a mortgage. I was told by Mr Slattery, and I accept, that the proceedings between the bank and Mr Evans were commenced prior to Mr Evans’ bankruptcy. In those circumstances, it appears quite likely that Mr Evans has lost or will shortly lose his principal asset, being his farm property because he has been unable to service the mortgage on it.
Secondly, a relevant consideration in considering the exercise of discretion is the bankrupt's conduct during the course of the bankruptcy prior to the annulment application. Annexed to Mr Evans' affidavit filed on 6 June 2003 is a report to creditors by the trustee on 29 May 2003. The trustee is not a party to these proceedings, but Mr Neate appeared by leave in order to assist the court and confirmed that the statement to creditors remains current. The significance of that statement is that Mr Evans has been uncooperative with his trustee. He has not filed a statement of affairs to date, despite several requests that he do so. The trustee has forwarded that default to the ITSA fraud investigation unit for investigation and possible prosecution. Until such time as Mr Evans does file the statement of affairs, time does not commence to run in the administration of his bankruptcy.
Thirdly, a further relevant consideration in the exercise of discretion is whether the bankrupt applicant has made any proposal for payment of fees and charges incurred by the trustee in the course of the administration. There is no such proposal by this applicant.
I will, therefore, dismiss the annulment application and for completeness I will also order that the application for review be dismissed. The petitioning creditor is entitled to its costs in responding to the annulment application. I will order that the applicant pay the respondent's costs of and incidental to the annulment application, to be assessed in accordance with the Federal Court Rules and paid in accordance with the Bankruptcy Act.
I will also declare that the costs of the trustee in dealing with the annulment application be treated as costs in the administration of the bankrupt estate.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 14 July 2003
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